Annex 1: International Regulatory Regimes Applying to Airports
Australia – Price Monitoring Regime
In 2002, the Australian Government removed price cap regulation and price notification with respect to airport services for all Australian airports, following recommendations made by the Productivity Commission.12 Instead, a price monitoring regime was introduced for major airports.13
The current price monitoring arrangements provide for the Australian Competition and Consumer Commission ("ACCC") to monitor the prices, costs and financial returns relating to the supply of aeronautical and related services.14 Prices and profits earned by an airport from services such as retailing, corporate parks and factory outlets or from the renting space for the provision of such services by third parties are not monitored. The ACCC is also required to report to the Minister on service quality at the monitored airports.15
The ACCC does not make recommendations or draw conclusions from the monitored information and cannot initiate an inquiry of its own volition. The information informs Ministerial judgements of whether further investigation (via an inquiry) is required.
A set of overarching principles (including pricing principles) specified by the Government provides guidance to parties on the appropriate outcomes under the monitoring regime. In 2007 the Government introduced additional pricing principles to the regulatory regime that:
- prohibited further asset valuations as a basis for increasing airport charges, freezing assets values as at 1 July 2005;
- specified that parties should negotiate in good faith to achieve outcomes consistent with the principles; and
- provided for a reasonable sharing of risks and returns between airports and their customers (including those relating to productivity improvements and changes in passenger traffic).
The triggers for further investigation/inquiry into monitored airports or a change in the regulatory regime for airports are:
- A "show cause" clause where the Minister for Transport and Regional Services, having regard to monitoring information will, each year be required publicly to indicate whether a monitored airport should "show cause" why their conduct should not be subject to more detailed scrutiny. The show cause clause is intended to ensure that the threat of re-imposition of price control is credible. This is currently being developed by Australian officials.
- An inquiry by the Australian Productivity Commission which tends to occur every five years, assesses the effectiveness of the regime against the review principles, and whether further regulation is warranted.
- Airport users can also use the national access regime available under Part 3A of the Trade Practices16 which addresses third party access to services of facilities of national significance through services being "declared" and for parties to negotiate terms and conditions of access.17 The aim of this part of the Act is to encourage competition in upstream or downstream markets. Decisions under this Part of the Act are subject to merits review by the Australian Competition Tribunal.
In October 2006, the Federal Court upheld the decision of the Australian Competition Tribunal (ACT) in December 2005 to declare the domestic airside service at Sydney Airport under Part 3A of the
Trade Practices Act. The Productivity Commission stated that this could have the effect of lowering the threshold for a facility to be declared with negotiate/arbitrate becoming the operative/default form of regulation. This could undermine the light-handed regime for airports. In response the Australian Government announced that it would amend this provision to reinstate a higher threshold for declaration than the Federal Court's 2006 interpretation of these provisions.18
The United Kingdom
The broad objective of economic regulation of airports in the United Kingdom is to promote the efficient, economic and profitable operation of such airports, while furthering the interests of airports users and encouraging timely investment by airports.19
Regulatory oversight applies to airports which have had an annual turnover of ₤1million or more in two of three of its most recent financial years. 57 airports in England, Scotland and Wales20 fall within the scope of this regulation, of which the main forms are price cap regulation for main city airports (discussed below), and lighter handed regulatory oversight for other airports.
Designated Airports – Price Cap Regulation
Currently, there are four "designated" airports, which are subject to price cap regulation - Heathrow, Gatwick, Stansted and Manchester. The criteria for designation generally relate to an airport having the scope to exercise substantial market power, and the benefits of designation exceeding the costs and potential adverse effects of this.
Every five years the Competition Commission and the CAA review and reset the charges for designated airports going forward,21 including an analysis of the airports' conduct over the previous period, for evidence of behaviour that may not be in the "public interest". Action by the Competition Commission will normally be triggered by complaints by those affected. Where the Competition Commission makes an adverse finding the CAA must impose conditions to remedy or prevent the adverse effects of the conduct concerned. Airports at this time can be de-designated.
Price cap control terms are determined using a "single till" approach where both aeronautical and non-aeronautical costs and revenues are taken into account when setting the appropriate level of airport charges.
Price Control Reviews
Currently, Heathrow and Gatwick airports are undergoing a five yearly review of their price control terms. The next five year regulatory period commences 1 April 2008.
Stansted and Manchester airports are currently subject to a government review of their designation status. Draft recommendations released in July 2007 suggest that both airports no longer meet the criteria for designation. This assessment is largely based on the level of competition that both airports now face, from other airports, and from rail and road.
Regulated Non-designated Airports
Airports with an annual turnover over in excess of $1 million, but are not designated, must apply to the CAA for "permission" to levy airport charges. Once granted, a permission remains in place unless the CAA revokes it. Regulated airports must also provide the CAA with their annual statutory accounts, and schedules of airport charges.
The CAA can open an inquiry, of its own volition, into a regulated airport's conduct and the treatment (including the charging of) airport users by airports. As a result of an inquiry, the CAA can impose additional conditions on an airport, including further information to be disclosed. Complaints are investigated by the CAA with the Competition Commission being the appeal body.
European Union
In February 2007, the Council for the European Union issued a "Proposal for a Directive of the European Parliament and of the Council on Airport Changes" (Directive). The purpose of the Directive is to establish a common framework to regulate the essential features of airport charges and the way the way they are set, across the European Union. The Directive will only apply to airports above a minimum size.22
The specific objectives of the Directive include contributing to fair competition between EU airports by the introduction of common charging principles; the promotion of more transparent charging systems applicable to users of airport infrastructure; and the generation of sufficient revenues to maintain and complete airport infrastructure at an optimal level.
Context
At present the pricing of EU airport services is regulated at the national level. There is an inconsistent approach across many airports within the EU as to how airport services are priced and charged to users of airport services. The status quo has been considered inadequate. One indicator of this is that 14 out of the 25 most expensive airports are located in the EU, and the quality of service and capacity available is not reflective in the increase in costs.
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